My Fuel Escalation Clause

mtdman

LawnSite Gold Member
Location
A2, Michigan
This is what I wrote for my fuel escalation clause for my customers this year. Constructive feedback appreciated. And yeah, I know some people don't think it's a great idea. I am asking what you think of my wording on what I wrote. We've already beaten the pro/con arguement to death.

FUEL ESCALATION CLAUSE:
All prices included on this pricing sheet have been figured using current gas and oil prices, as of February 2004. However, in the current unstable economic climate, fuel and oil prices have shown to fluctuate widely in the summer months, and there are always predictions for higher prices every year. Gas and oil are two major expenses in the Green Industry. To create affordable, accurate and competitive rates each year, it is extremely difficult to anticipate the gas and oil price fluctuations. At the same time, higher rates cut directly into revenue and come right out of my profits. TJ’s is a full time business for me; I do this as my career. To stay in business and produce a profit margin I can live from, I must take into consideration this potential for gas and oil price spikes. Unlike retail pricing, my rates are set at the beginning of the season, and I lock them in for you for the season. If major price increases occur during the summer, I have no way of offsetting those price spikes during the season to maintain a reasonable living wage.

Therefore, starting this season, I will include a fuel escalation clause with my pricing. All lawn care rates quoted on this pricing sheet are applicable for gas prices up to an average of $2.25 per gallon, 87 octane. From $2.25 to $3.00, an additional $1 per visit will be added to your rate. For each additional $1 per gallon beyond $3.00, an additional $1 per visit will be added. The escalation will be based on average gas prices on the day of your service. If prices come down, the additional charges will not be charged for that visit. If prices stay up, any necessary rate adjustments will occur next season.

This clause is designed to offset any gas and oil price spikes that might occur during the summer season. This increase is a minimum I would need to charge to stay profitable, and I hope to never invoke this Escalation Clause. A sample escalation table is available on the website, www.tjslawncare.com.
 
OP
mtdman

mtdman

LawnSite Gold Member
Location
A2, Michigan
And here's a question I was thinking about as I wrote that. How exactly should I introduce this to new customers? Anyone have a problem explaining their clause to potentials?
 

Phishook

LawnSite Bronze Member
I like it.

I'm 90% sure I'm going to do something very similar to that. I just have to figure out the price to start it at.
 

dkeisala

LawnSite Senior Member
Location
Vancouver, WA
You're kidding, right? Between this and your other thread, how difficult are you going to make it for your clients to do business with you? Do you think your customers really care how much gas cost you? If you can't figure contingencies into your costs, that's your fault, not theirs.

Gas ALWAYS costs more in summer and winter months than any other time of the year. It's all based on supply and demand. If you are so concerned with an upswing in fuel costs, why don't you just charge all customers a bit more and spread it over your entire client base without their knowledge than making some lengthy, and wordy, diatribe in your contract? Someone tried to pass that off to me and I would tell them to p!ss up a rope.
 

promower

LawnSite Bronze Member
Location
Wisconsin
Nothing wrong with a fuel esculation clause. And honestly those are very reasonable prices if were a customer or thinking of using your services an addition dollar or two per visit if gas prices skyrocket would not worry me. If the cost of doing buisness goes up, then the cost to the consumer goes up. Presenting it to new clients, I would just include in the contract and not even mention it, if they question the clause just explain what it means to them.
 
OP
mtdman

mtdman

LawnSite Gold Member
Location
A2, Michigan
Hey dkeisala,

Constructive feedback appreciated. And yeah, I know some people don't think it's a great idea. I am asking what you think of my wording on what I wrote. We've already beaten the pro/con arguement to death.
 

Richard Martin

LawnSite Fanatic
Location
Greenville, NC
One question I have is:

Will you be adjusting the escalation to suit a particular lawns needs? For example, say one lawn is 1/4 acre and the next is 3 acres, would you adjust the pricing the same for both lawns regardless of actual fuel used?

In other words, this is all fine and good if everybody's lawn is the same size and it takes you the same amount of time to get to each lawn.
 

Phishook

LawnSite Bronze Member
Originally posted by dkeisala
What was your fuel expence last year?

we're talking $1 per week over 2.25. So the gas on july 21 was $2.90/gal. The normal mowing was $37. July 21,the price would be $38. *Not to mentoin I used 4 gal there, 4 home, and about 1/3 mowing at $2.90 a gal.

8.333gal x $2.90=24.17 july 21

8.333gal x $1.70=14.17 may 14

:eek:
 
OP
mtdman

mtdman

LawnSite Gold Member
Location
A2, Michigan
Originally posted by Richard Martin
One question I have is:

Will you be adjusting the escalation to suit a particular lawns needs? For example, say one lawn is 1/4 acre and the next is 3 acres, would you adjust the pricing the same for both lawns regardless of actual fuel used?

In other words, this is all fine and good if everybody's lawn is the same size and it takes you the same amount of time to get to each lawn.
The charges I mentioned are what I figured an average lawn will cost me in increased gas prices. That includes driving time gas, equipment gas, etc. Therefore, the charge is spread over my entire customer base. And most of my lawns are the same size.

The minor increase that comes seasonally isn't what I am worried about. I am worried about the potential price spikes of $3 to $4 per gallon, and I want to have a method in place to offset those spikes. In 2000 when gas nearly doubled, so did my costs. But I had set my prices at the beginning of the season, and I promised they would stay the same. What's worse, going back on my word mid stream or having a prearranged method for offsetting costs and maintaining my living if need arises?

I fuel up 2 to 3 times a week, at an average of $40 for all equipment last year at around $1.50 a gallon. If gas prices were to spike and double, that's a huge increase in expenses. I'm not going to eat that. Retail businesses don't eat costs when they increase, why should I? And were I to try to anticipate those spikes in my pricing, it would drive my prices beyond the range of competitiveness.

Furthermore, I like to explain things to my customers. I put things in as simple terms as possible, try to explain to them my process at arriving at new policies like this. I could just slap it in there, say take it or leave it. Instead I tried to explain the whole thing, head off questions and reservations.
 

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